When it comes to the cost of installing and using a solar array for a home or business, is it better to own the solar panels or to lease them from a third party?
Solar leases can be attractive due to their low or zero up-front costs, but over the long run, low-interest solar financing can be up to 30% cheaper than solar leases, according to a new report from the Energy Department’s National Renewable Energy Laboratory (NREL).
When going solar, many US homeowners – about 2/3 – opt for solar leases or power purchase agreements (PPA), which allows them to reap the benefits of clean, lower cost, electricity, without having to shoulder the cost of the panels and installation or worry about maintenance to the system. But it might make a lot more economic sense for homeowners and business owners alike to consider taking out a solar-specific or other low-interest loan to purchase the solar PV system, which could save quite a bit more than a solar lease.
In Banking on Solar: An Analysis of Banking Opportunities in the U.S. Distributed Photovoltaic Market, the NREL team looked at the increasing options for solar financing on the market, and found that solar loans with 5, 10, and 20 year maturities had a lower levelized cost of energy (LCOE) than a 20-year PPA lease, “representing a reduction of 19% to 47%.”
“Solar loans have the potential to provide an economical option (from an LCOE perspective) for homeowners and businesses to finance the purchase of a solar system, retaining the benefits of ownership that TPO systems cannot provide while avoiding the large upfront cost of a PV system.” – NREL
A number of other variables will affect the economics of solar financing (solar loans vs solar leases) for prospective solar homeowners, including the interest rates of the loan, the length of the loan, and the size of the monthly loan payments, so this isn’t a one-size-fits-all analysis, and it also assumes that the owner will qualify for the 30% solar Investment Tax Credit.
The full report is available as a free download from NREL (PDF).